Fantasy Sport and Retail Bankruptcies Remind Buyers To Beware

Most consumers never give much thought to the possibility that a store they shop at or a service they use could just up and disappear. We take for granted that established brands will always be around, when the reality is that companies come and go all the time. When a store is sold or changes names, consumers rarely suffer, as debts owed are almost always honored. The same isn’t true in the case of bankruptcy filings, which can leave consumers out money they mistakenly imagined was secure.

A recent newspaper article discussed two bankruptcy cases that highlight this concern. The first is the recent Chapter 11 filing for the retailer Wet Seal. The clothing chain filed for bankruptcy for the second time earlier this month. When it did so, it revealed that it would be closing its retail outlets for good and would be liquidating all remaining assets. The consumer impact extends beyond the inability to continue buying Wet Seal merchandise. As the stores close, so too closes the opportunity for those with gift cards to extract their remaining value.

Wet Seal is just one in a long line of retailers to recent face financial trouble. The Sports Authority is another good example of a company that ran into problems and liquidated, leaving customers high and dry. When the retailers file for bankruptcy and cease operation rather than reorganize, it can be difficult if not impossible for a consumer to reclaim the money sitting on gift cards. The trouble is that the value of the remaining assets that are available to be distributed to creditors is so little when compared to the company’s usually extensive debt. When there’s too much debt and too little money to go around, consumers are often the ones to suffer.

Another industry that consumers should be wary of is online fantasy sports operators. The industry has ballooned in recent years and with the explosion has come dozens of new entrants with questionable records and precarious financial health. One such fantasy sports operator, Fantasy Aces, filed for bankruptcy at the beginning of this month. Fantasy Aces filed for Chapter 7, choosing to liquidate rather than try and reconstitute the company. When it filed, the company revealed $1.8 million in assets compared to $3 million in liabilities. What are these assets, you might wonder? In the vast majority of cases they are deposits from contest participants.

Sadly, participants in these online games might be even more surprised to see their money disappear. Many people mistakenly believe that these deposit accounts are in some way protected or at least kept separate from the regular operation of the company so that if something were to go wrong the money could easily be refunded. This is almost never the case, even in healthy companies. Once a deposit is made to a playing account, this money effectively disappears into the general operating funds of the company. Rather than view the money as in your own little pot, imagine it instead being mixed into a much larger pool. That means if the company faces trouble, your money will be subject to claims by any and all creditors, including yourself.

Though unfortunate for the consumers caught up in the mess, both cases are important illustrations of the larger point that buyers must beware before handing money over to companies for safe keeping. If you give away money without doing your homework, don’t be surprised if you end up getting burned.

If you are contemplating bankruptcy in the Charlotte area, please call the skilled lawyers at Arnold & Smith, PLLC find additional resources here. As professionals who are experienced at handling all kinds of bankruptcy matters, our attorneys will provide you with legally sound advice for your particular situation.